Australian consumers are currently facing a challenging environment due to high inflation.
According to this report from Westpac, the Reserve Bank of Australia (RBA) intent to bring inflation back to the target range of two to three per cent, is putting significant pressure on Australian households.
Westpac expect the RBA to deliver two more rate hikes in the next couple of months, as they further tighten monetary policy.
In the following video Matthew Hassan, Senior Economist at Westpac explained that this will further decrease disposable incomes, with consumers bearing the brunt of these policy measures.
In the short video you will hear how the Australian economy contracted by 4% over the year to March, which is a historically significant contraction.
However, the massive household savings accumulated during the pandemic and the fact that many homeowners took out fixed-rate loans have helped support consumer spending during the recent difficult times.
Matthew Hassan, Senior Economist at Westpac explained:
"The labor market has remained relatively stable, but consumer sentiment is deeply negative, with per capita spending decreasing.
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Westpac's card tracker, which tracks credit and debit card transactions, warns of significant downside risk in the second quarter.
Data up to mid-June suggests that economic activity may have contracted around one percent in the quarter, reflecting the pressure from higher costs of living and interest rates.
The RBA is concerned that inflation is becoming entrenched and needs to be dealt with immediately to prevent a weaker economy.
However, once the weak consumer picture becomes clearer, the RBA is expected to be more comfortable that inflation will track back to its target."
Hassan also commented that "there are some positive aspects, such as strong population growth, wage growth, and fiscal support."
However, the negative impact of interest rates and inflation is the dominant issue for households in Australia.
He believes the response from policymakers and central banks has been successful in preventing double-digit inflation, and there is a good prospect of bringing inflation back under control.